Problems Encountered During the Transition to Market Economy in Azerbaijan and Solution Attempts

Expert Journal of Economics, Vol. 2, p. 45, 2014

10 Pages Posted: 31 Jul 2014

See all articles by Elchin Suleymanov

Elchin Suleymanov

Baku Engineering University - Department of Finance

Sabuhi Yusifov

Qafqaz University - Center for Municipal Research

Date Written: July 30, 2014

Abstract

After regaining its independence on 18 October 1991, the Republic of Azerbaijan started to transform to the market-based economy and to integrate into the world economy. The country’s oil and natural gas reserves have been considered the main source for financing range of government programs for reforms. On the one hand, these reserves had to be used effectively; on the other hand, there was a huge demand for foreign investment for extraction. To this end, Azerbaijan has signed “Contract of the Century” in 1994. Although Azerbaijan has wide oil and natural gas reserves, it has faced a number of difficulties in its transition way. This study analyzes these problems and reforms for solving them. One of the types of the problems were related to the economic structure of the former Soviet Union: disruption of the economic ties between the republics resulted in decline of production, high levels of unemployment and prices and consequently led to an economic recession in all of the republics. Another set of problems was related to lack of sufficient institutional bases to transform to the market economy. Moreover, internal conflicts between the political parties and groups for having authority as well as political chaos in the republic can be considered other serious problems during the transition period. Furthermore, Karabakh war and occupation of 20 percent of the Azerbaijani territory by the Armenian military forces had made the situation extremely complicated. Despite all of these extremes, Azerbaijan transformed to the market-based economy decidedly and even became one of the fast growing countries of the world. Even in 2013, with the GDP growth rate of 4 percent, Azerbaijan was a leader among growing economies. In parallel with this significant economic development, there is still a need for some socio-economic and institutional reforms in order to get a well-functioned market-based economy in Azerbaijan.

Keywords: Azerbaijan, oil, natural gas, informal sector, energy resources, oil dependency

JEL Classification: P21

Suggested Citation

Suleymanov, Elchin and Yusifov, Sabuhi, Problems Encountered During the Transition to Market Economy in Azerbaijan and Solution Attempts (July 30, 2014). Expert Journal of Economics, Vol. 2, p. 45, 2014. Available at SSRN: https://ssrn.com/abstract=2474299

Elchin Suleymanov (Contact Author)

Baku Engineering University - Department of Finance ( email )

Baku Sumgait Road 16th km. Hasan Aliyev Str. 120
Baku, AZ0101
Azerbaijan

HOME PAGE: http://beu.edu.az/en/staff_directory/staff/elsuleymanov

Sabuhi Yusifov

Qafqaz University - Center for Municipal Research ( email )

Baku Sumgait Road 16th km.
Hasan Aliyev Str. 120
Khirdalan, Baku AZ0101
Azerbaijan
4482862 (Phone)
4482861 (Fax)

HOME PAGE: http://www.qu.edu.az/en/staff_directory/staff/syusifov

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